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Do you dream of building a product or service that solves a problem and grows into a profitable business at the same time?
To get there, you can’t just focus on the problem-solving part, you also need to understand the state of your business. Setting the right KPIs will tell you exactly how you’re doing while trying to achieve those dreams.
What is a KPI?
KPI stands for Key Performance Indicator, a measurable value that indicates how effectively a business is achieving a pre-defined objective.
Setting your KPIs and measuring them correctly is a reliable way to prioritise your time and steer your start-up to continuous growth.
KPIs are often confused with Metrics. To set things straight: KPIs are the metrics you measure to find out if you’re hitting your pre-defined business goals.
What are the five KPI buckets?
1. Customer KPIs measure the relationship between your business and customers.
2. Financial KPIs Measure how your business uses its resources to achieve profitability.
3. Operating KPIs measure how happy your employees are at your company.
4. Marketing KPIs measure the success of your marketing campaigns.
5. Sales KPIs Measure your current sales funnels.
Which KPIs should you track?
Finding the right KPIs for your start-up begins with one question: How do you make money from your users? Your answer determines your business model and the most essential metrics for your to track.
To get you started, we’ve listed five of the most common types of business models and the respective four or five core KPIs that start-ups should be tracking:
1. E-commerce Model
Definition: An e-commerce company sells goods in their brand name directly to consumers online. These companies usually source or manufacture and own an inventory of the goods.
Examples: Zalora, Redmart, Secretlab
Core KPIs to track:
- Monthly Revenue
- Compounded Monthly Growth Rate (CMGR)
- Paid Customer Acquisition Cost (Paid CAC)
- Gross Margin
2. Marketplace model
Definition: A marketplace company offers a platform that facilitates the sale of goods or services between buyers and sellers, earning a percentage of the total transaction value.
Examples: Carousell, Tokopedia, Lazada, Uber
Core KPIs to track:
- Compounded Monthly Growth Rate (CMGR)
- Gross Merchandise Volume (GMV)
- Paid Customer Acquisition Cost (Paid CAC)
- Retention Rate
- Net Revenue
3. SaaS model
Definition: A SaaS (software-as-a-service) company sells a cloud-hosted software solution on a subscription basis.
Examples: Aspire, Mekari, AllSpark
Core KPIs to track:
- Monthly Recurring Revenue (MRR)
- Annual Recurring Revenue (ARR)
- Gross MRR Churn Rate
- Paid Customer Acquisition Cost (Paid CAC)
4. Subscription model
Definition: Similar to the SaaS model, a subscription company sells a product or service on a recurring basis. The difference is that a subscription company sells directly to consumers while SaaS start-ups sell to businesses.
Examples: Ruangguru, Pahamify, ClassPass
Core KPIs to track:
- Gross User Churn Rate
- Paid Customer Acquisition Cost (Paid CAC)
- Compounded Monthly Growth Rate (CMGR)
- Monthly Recurring Revenue (MRR)
5. Transactional model
Definition: A transactional company processes payments on behalf of customers and collects a transaction fee in return.
Examples: Grab, Shopback, Doku
Core KPIs to track:
- Total Payments Volume (TPV)
- Paid Customer Acquisition Cost (Paid CAC)
- Retention Rate
- Net Revenue
What is an example of a KPI?
Enough theory, let’s watch a KPI in action:
Say, you’ve set a goal of getting 20,000 daily active users in the next six months. Now, you’ve got 8,000 daily active users, so you’ll need an extra 12,000 users in total.
The “divide and conquer” approach applies here: Instead of focusing on the final number of 12,000 new users, keep working to achieve 2,000 new users each month.
FAQ
How to set KPIs?
- Figure out what you need to improve based on your business model.
- Select the right metrics to measure progress for each of the improvements you want to make.
- Define a timeline.
- Share your goals and KPIs with your team.
- Track your KPIs and review the progress at the end of the given time.
What are the 5 Key Performance Indicators?
KPIs should respond to the needs of your business model, so the most important KPIs are never the same. In general, the 5 KPIs that companies tend to track are Retention Rate, Net Promoter Score, Profit Margin, Revenue Growth and Revenue per Client.
How to measure KPIs?
KPIs have different levels of complexity. Generally, businesses manually calculate the simpler KPIs (for example, revenue) and use software to automate the tracking of high-level KPIs (for example, Customer Acquisition Cost vs Customer Lifetime Value).
Tracking the right set of KPIs for your business provides valuable feedback on your spending, operational efficiency, marketing efforts and customer satisfaction.
If you’re not already tracking your start-up’s performance, you should seriously consider investing some time in it. Just four or five KPIs can be the difference between success and failure.
Frequently Asked Questions
